Lec 3 Consumer Behavoir

Lec 3 Consumer Behavoir - 1 Axioms of choice We use the...

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1 Axioms of choice More is better than less. Completeness Transitivity
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2 Utility function U ( F;C ) U is increasing in F and _ C . U F ( F;C ) is the increase in utility due to a mar- ginal increase in F . U C ( F;C ) is the increase in utility due to a mar- ginal increase in C .
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3 Marginal rate of substitution Consider an consumer with C units of clothing and F units of F . Let her have ± F more mar- ginal units of food and ± C more marginal units of clothing. What is her increase in utility when she has ± F more food? U F ± F What is her increase in utility from the extra cloth- ing U C ± C
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What is her total change in utility U = U F F + U C C But if she stays on the same indi±erence curve and her total utility did not change, U F F + U C C U = 0 U C C = ± U F F C F = ± U F U C (MRS) The marginal rate of substitution of food for
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Lec 3 Consumer Behavoir - 1 Axioms of choice We use the...

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